Slovenia Information Technology Report Q1 2008

Market Overview The Slovenian IT market should grow strongly in 2008 supported by an economy which is expected to continue performing robustly, supported by exceptional growth in gross fixed capital formation. IT spending is expected by BMI to increase from US$970mn in 2007 to more than US$1.4bn in 2012, with services (26% of spending) and software (19%) growing at a faster rate than hardware (55%).

With Slovenia becoming a member of the eurozone on January 1 2007, completing a ten-year period of economic and structural reform, the direct and indirect effects of EU membership will continue to drive spending in this country. Adoption of the Euro was a major driving of IT spending in 2007, particularly in the financial sector where it accounted for as much as 40% of spending.

BMI has upwardly revised our GDP growth projections to 5.6% in 2007 and 4.5% in 2008. One area where IT spending growth is likely to be particularly strong is the relatively underdeveloped north-eastern region, Podravje, which has previously been associated with heavy industry, but is now the focus of government redevelopment efforts, and also benefits from its proximity to Austria.

Industry Developments In July 2007 the EU announced funding for its Competitiveness and Innovations programme for the period 2007-2013. They include substantial sums to support policies in the ICT sector. With Bulgaria and Romania now having joined the EU, Slovenia is keen to launch a number of major new national development projects to highlight and consolidate its status as one of the most advanced of the 2005 intake. The projects are within the framework of the National Development Strategy. The overriding goal is raising GDP per capita to the EU average by 2013.

A number of projects in the ICT space were rolled out in 2007. In May 2007 Jure Zupan, the Science, Technology and Higher Education Minister, announced an extension of the EUR1.3mn project to bring internet access to all students. However, there is still room for progress in many areas. While the number of connected schools is now fairly high, the actual number of computers in schools and usage by students and teachers lags behind. IT Skills levels in the workforce are also only slightly above average and so there is need for more investment in this area.

Competitive Landscape Turning to software, SAP and Microsoft Dynamics are the leaders in the enterprise application software market with Slovenian enterprise Kopa leading the local challenge according to IDC data. The combined share of the leading three is close to 50%. Most of the competition is for the manufacturing segment, which still accounts for around one third of EAS spending in Slovenia, with other significant sectors including retail and communications.

Slovenia's domestic IT giants were in an aggressive mood in 2007 following strong 2006 financial results, and outlined aggressive expansion plans for 2007 and beyond. Formerly troubled Hermes Softlab was targeting a 15% rise in revenues in 2007, to EUR47.8mn, following an announced a 20% rise in sales revenues in 2006. Meanwhile another Slovenian IT group Actual IT, which has IT services at its core business, was targeting 2007 revenues of around EUR16.7mn, representing a 24% rise.

The recent success of Actual IT highlights the opportunities that the IT services market is bringing for vendors both domestically and regionally as Slovenian organisations upgrade IT systems to strengthen competitive advantages following EU accession. A number of hardware producers are also paying more attention to developing services capabilities.

Computer Sales Sales of computers (including notebooks and accessories) were estimated at US$416mn in 2007, up from US$396mn in 2006, and within an overall 2007 hardware market of US$533mn. Prices are continuing to fall, but sales will be driven by growing DSL coverage and penetration, with overall internet penetration rising to more than 70% by the end of the forecast period. Based on industry data, household PC penetration rose from 47% in 2001 to 61% in 2005. Broadband services such as IPTV, now offered by both SiOL and T-2, are now available to 70% of the country. Sector drivers will include banking (see Industry Developments) and telecoms.

While desktops still account for a majority of unit sales, the trend is very much in favour of laptops.

Services will become an increasingly important competitive differentiator here. Overall, international brands seem to be consolidating their position in the market, with HP still the leading brand, but with Dell now in second place, supplanting Lenovo which is now third. HP also leads in the server segment, followed by IBM.

Software The software market in Slovenia was estimated at US$184mn in 2007, up from US$164mn in 2006.

Relatively strong progress is expected during the forecast period to 2012, with software growing more than twice as fast as hardware in revenue terms, at a CAGR of 10%. According to industry projections, between 75,000 and 80,000 computers were expected to be sold in 2007 in Slovenia with Microsoft Windows Vista pre-installed.

Most large enterprises (79%) have now deployed enterprise resource planning (ERP) applications, meaning that vendors will have to look to other areas, such as SMEs, for growth. However, nearsaturation of the large-enterprise market in terms of essential applications should encourage vendors to look to other segments to maintain growth, or else focus more on vertical specialisms. Although large and very large enterprises still constitute around one-half of the spending on EAS in Slovenia, more than 64% of new installations are reported to come from small and medium-sized businesses.

Services The Slovenian IT services market grew to around US$252mn in 2007 from US$227mn in the previous year. Spending CAGR for the 2006-2011 period is put at 9%. In addition, 2008 should see continued healthy economic growth, leading to investment in applications and solutions that make processes more efficient on behalf of both governments and businesses.

IT services represents around 26% of IT spending in Slovenia, reflecting a market at an earlier stage of maturity than, for example, that of the Czech Republic. However, boosted by local giant Hermes SoftLab, IT services is the second largest ICT exports category by revenues. The growth rate of the IT services market is set to rise as Slovenian organisations upgrade IT systems to gain or maintain competitive advantage following EU accession E-Readiness New 2007 data from the Statistical Office for Slovenia concerning enterprise ICT utilisation reveals progress as well as potential growth areas. The survey suggests that the internet is now ubiquitous in the enterprise sector, having reached 96% penetration among enterprises with 10 or more people employed.

However there is still room for growth in broadband with only 79% of enterprises having this; 17% still have narrowband. Companies are increasingly using the internet for interactions with government, suggesting that e-government programmes are helping to drive IT adoption in other sectors.

Of most direct interest to vendors is information about use of applications. According to the data, 79% of enterprises had a LAN, nearly 30% up on the previous year, while 28% have their own intranet. The same proportion (28%) makes use of ERP software. Of these, the vast majority are large enterprises, 79% of whom have ERP. There is a concentration in some industries, with 65% of those the post and telecoms industry using enterprise software. The report also reveals a growing market for CRM, now used by 23% of companies.